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Autotrader's IPO Has a Few Dents

Investors should realize Autotrader is facing heavy competition from and as well as search engines like Yahoo! (YHOO - Get Report) and Google (GOOG - Get Report).

Autotrader seems to recognize that having a site that sells car isn't unique or sticky. So, they are heavily invested in their software solutions for car dealers, an arena where competition isn't quite as stiff.

Auto makers and dealers realize that car shopping is increasingly moving online and the advertising dollars are following the shoppers. Borrell Associates predicts that online media buys for the auto industry will rise 39% in 2012. Auto ad dollars will be shifting away from direct mail, magazines and radio. CarMax (KMX - Get Report) has learned this and has a strong web presence. Franchised auto dealers have also increased their online presence. is taking market share and now web behemoth Google is getting into the lead generation business. If Google thinks you are looking for a car, like a Toyota, then it will give you a car and dealer to look at. For now it is only being tested in certain markets in California. CarWoo! is rumored to be hooking up with Yahoo! Autos. Maybe because they both like exclamation marks? These deals demonstrate the battle for online auto shoppers is heating up.

Autotrader wants to raise $300 million and this is its second attempt to go public. The timetable for the listing is still unclear and the company filed once before in 2000, only to withdraw. The company plans to list on Nasdaq under the symbol "ATG."

The fact that the company is already profitable and has a stable revenue base is a big plus, but investors need to consider the tight competition and hefty debt load before ponying up for Autotrader.

-- Written by Debra Borchardt in New York.

>To contact the writer of this article, click here: Debra Borchardt.
Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.
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